NZ Emissions Trading Scheme - what we are seeing

It has been a busy few months in the climate change sector, with a number of consultation documents released, submission and registration deadlines passing, and trading activity increasing. Senior associate Kate Radka details the developments.

Participant registrations

We saw a significant number of participants registering on the Emissions Unit Register in January 2010 for activities within the stationary energy, industrial processes and liquid fossil fuel sectors in preparation for the introduction of these sectors to the Emissions Trading Scheme (ETS) from 1 July 2010.

Emissions intensive trade exposed (EITE) allocations

Many businesses within these sectors are following closely the Government's development of the Industrial Allocation Regulations. In December, the Government released a consultation document (Development of Industrial Allocation Regulations under the New Zealand Emissions Trading Scheme) which outlined its intended approach to implementing industrial allocation under the NZ ETS. In summary, it:

• set out the process for awarding allocation under the moderated NZ ETS;

• sought feedback on a number of technical matters;

• listed industrial activities that might be eligible for an allocation and invited firms that conduct these activities to identify themselves; and

• invited firms that perform other activities that may be eligible to receive an allocation to come forward and provide preliminary data to demonstrate this.

There is a level of angst for some businesses as to whether their activities will be considered to be "eligible activities" under the ETS, given the uncertainty arising from the interplay between the EITE aspects of the proposed (but stalled) Australian scheme and the ETS, and the manner in which officials will interpret certain sections of the Climate Change Response Act 2002 which apply to EITE. Businesses have been seeking legal advice on the areas of uncertainty, and the likelihood that their activities will meet the criteria set out in the Act. A number of submissions were received by the Government, and officials continue to be in discussions with various industries.

We expect to see increased lobbying of officials as they continue to work through the process of finalising definitions for eligible activities. Ideally the definitions would be finalised by 1 July 2010, but such a tight deadline is unlikely to be achieved. Delays in providing allocation during the first year have been catered for. The consultation document notes that allocations will be provided back-dated to 1 July 2010 for those found eligible.

Carbon trading

We have seen a significant rise in carbon trading since the start of the year, with many deals parked in 2009 awaiting the outcome of the Moderated Emissions Trading Bill process being, or close to being, finalised.

Forestry

There has been an explosion of registrations on the Emissions Unit Register of both post-1989 and pre-1990 forestry participants.

This includes forest landowners who have an obligation to register as a result of having deforested more than 2 hectares of pre-1990 forest land since 1 January 2008. Such foresters are required to file an emissions return by 31 March 2010 quantifying their deforestation liability using the form on MAF's website: www.maf.govt.nz/sustainable-forestry/ets/form_pre-1990-deforestation.htm. Although the reporting deadline is in March 2010, emissions units to meet such deforestation liabilities do not need to be surrendered until 31 May 2011 (at the latest).

Post-1989 forests emissions return deadline

The emissions return deadline is quickly approaching for those post-1989 foresters who choose to file their return by 31 March and claim New Zealand Units (NZUs) for the net increase in carbon sequestered in their forests since 1 January 2008.

However, if foresters have not submitted their post-1989 registration application already, it is unlikely to be processed prior to the close date for emissions returns. Only registered participants may file an emissions return claiming NZUs. For those who have not yet registered, an emissions return can be filed between January and March next year (2011) for the change in carbon stocks in that forest over the period 2008 to 2010.

Pre-1990 forests allocation plan

Pre-1990 foresters awaiting the release of the Pre-1990 Forest Land Allocation Plan following the end of the consultation period on the draft plan in November 2009, will be waiting a while yet, with a further draft allocation plan to be released for consultation in March 2010.

The draft that will be released for consultation will propose regulations covering detailed aspects of the allocation of New Zealand Units to the forestry sector for pre-1990 forest land, including further rules to determine eligibility for different rates of allocation, and information requirements.

Foresters and landowners who have been seeking advice before determining whether to transfer forest land or forestry rights will be looking for greater certainty in the consultation document to ensure they will not trigger the thresholds resulting in a significant loss in value arising from the allocation arising in respect of the forest.

Pre-1990 tree weed deforestation exemptions

The Government will also be releasing proposed regulations for exemption from deforestation liabilities in relation to tree weeds on pre-1990 forest land. The consultation document is expect to specify the list of tree species that may be considered tree weeds, and the criteria and priorities for assessing tree weed exemption applications.

Transfers from Permanent Forest Sink Initiative to NZ ETS

The deadline of 1 April 2010 is looming for those parties with Permanent Forest Sink Initiative (PFSI) covenants who wish to transfer all of their forest sink area to the NZ ETS. They must have completed registration in the NZ ETS by 1 April 2010.

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.